With the stock market tumbling today, it doesn’t seem like it was that long ago when it was in a continuous freefall as we slipped into a recession. That left our retirements accounts drained, credit card debt up, and savings accounts down, so it might not be a bad idea to get yourself prepared for the future. In addition to asking yourself what is better between a 401k vs ira, there are more aspects of your personal finances that you can take control of and ensure that you heading in the right direction month over month so that you can stay out of debt and build your nest egg up for the future when you do finally decide to walk away from working and live out the remainder of your life stress-free.
Start Tracking Spending
The tough thing about these days when using debit/credit over cash, while convenient, it can lead to spending getting out of control until you wipe out your bank account until the next paycheck, send your credit card balance soaring, or a combination of the two. If you are able to pull last month’s debit or credit card statement and actually go line by line you can figure out exactly where each dollar is going. Although it can scare you a little, you can take it a step further and start to see how much is going towards necessary vs. unnecessary spending.
Put a Budget Together
Now that you have an idea of how much you’re spending where, you can figure out the appropriate amount to spend and come up with a budget. While it may take a few months to tweak, not to mention being an ongoing effort going forward, you can at least start to put limits on where your excess money is going after paying bills, and even force you to take a look at what you’re spending as a whole each month and see where you can make cuts and reduce even the “necessary” expenses you have.
While it’s a good idea to reduce the easy expenses like going on shopping sprees to free up extra money, it’s the difficult cuts that will take you to the next level. First, if you can reduce going out to eat and go for preparing meals at home by going grocery shopping and limit meals out to maybe even once a week, you could see hundreds of dollars pile up each month. Second, while you may have grown accustomed to having cable, but if you think about how many channels you actually watch, especially live vs. on DVR, you could probably get used to just having a $10 a month streaming service that still have plenty of shows, plus getting a $20 HD antenna to still get the local network channels and you may not even miss cable.
Build Up an Emergency Fund
You never know when you have to shell out a large chunk of money for medical bills, finally work on the home upgrades you’ve been putting off, or having to take your car in for an unexpected repair, it’s nice to have a cushion so you don’t have to put these charges on a credit card. If money is tight and just about every dollar accounted for as it is, adding a credit card monthly payment can throw your budget out of whack. If you can strive for a few months’ worth of expenses in an account in case of emergencies, you can be prepared for any charges that come up.
Increase Retirement Contributions
Before you know it, you will be ready to walk away from work, so the earlier you can start really focusing on saving for retirement, the more it will grow over time and you can have enough to live off to continue to enjoy life experiences without the stress of work. Keep an eye out for employer-matched contributions that you could potentially be missing out on free money by not contributing to the max of what they’re willing to offer, and that could be huge over time. Going forward if you can increase contributions by even a percent each year, that will continue to build up your retirement account without feeling too much of a burden on your bank account with that money going away. Setting auto-contributions will get rid of the manual move from account to account and allow you to resist the temptation of spending your hard-earned money on something else besides building for your future.